THOUGHTS ON EQUITY SHARING

[Nicolas Biangel]

Good morning!  Hope you all are staying safe!  I'm under contract for a 20 unit complex and partnering with a private lender to assist with the down payment.  My question is--what is the "market rate" for equity when the investor is putting down the 20% down payment? 

Thanks in advance for your insight! 

[Erik W.]

Actually, I could see there being equity with a partner who brings the entire down payment, even if you do borrow the other 80% from the bank.

But since you're asking about cash flow split, keep in mind that is different from equity.  Equity is a share of ownership of an asset.  Cash flow is a dividend paid out the asset's earnings.  So I think you are asking about cash flow split.  Two questions first:

Who's name is on the loan?

Who will have ownership and in what proportion?

Cash flow can be divided in many ways, and those two factors play a huge role in my view.  If the investor has no actual ownership interest in the property, then I would expect a higher % cash flow share because he's missing the upside of that equity and also the security of owning part of the investment. Hard to know for sure until we know all the details.